Apple Sales Beat Estimates on Demand for Latest iPhones

  • Company’s largest iPhone 7 Plus was standout in holiday period
  • Company introduced its latest iPhone handsets in September

Is It All About Apple's iPhone 7?

Apple Inc. reported quarterly revenue that topped analyst projections, fueled by demand for the company’s latest and priciest iPhones.

Apple said sales rose 3.3 percent to $78.4 billion, with earnings of $3.36 a share in the three months through Dec. 31. Analysts forecast profit of $3.22 a share on revenue of $77.3 billion, according to data compiled by Bloomberg. The shares gained as much as 3.5 percent in extended trading, after the results.

“We were surprised by the strength of iPhone 7 Plus where we were actually short of supply throughout the quarter. We’ve been able to come into supply-demand balance in January," Chief Financial Officer Luca Maestri said Tuesday in a telephone interview.

Introduced in September, the iPhone 7 represented a modest update to its predecessor, the 6S, adding water resistance, an improved camera, battery life and processor while retaining similar styling. Expectations are mounting for a more significant upgrade to Apple’s flagship product later this year, which is the 10th anniversary of the iPhone’s launch.

Apple said it sold 78.3 million iPhones in the final quarter of 2016, generating $54.4 billion in revenue in the period. The average sales price for each iPhone was $695, compared with $691 a year earlier. Analysts had forecast iPhone unit sales of 76.3 million and an average selling price of $688, according to a Bloomberg News survey. That suggested consumers are still eager to snap up Apple’s latest models, which bodes well for future product launches.

“The iPhone 7 is our most popular model,” Chief Executive Officer Tim Cook said in a conference call with analysts. “We saw especially strong demand for iPhone 7 Plus, which was a higher portion of the new product mix than we’ve ever seen with Plus models in the past.”

Since the iPhone 7 Plus base price is $20 more than its predecessor, that boosted the average selling price and offset the impact of some people still buying the older 6S Plus and the cheaper iPhone SE.

Sales in the three months through March will be $51.5 billion to $53.5 billion, the Cupertino, California-based company said in a statement. The average estimate of analysts in a Bloomberg survey was $53.8 billion. Apple expects a gross profit margin of 38 percent to 39 percent in the period, while analysts forecast 38.7 percent.

“The takeaway is that the top end of their guidance is close to where the street is at,” said Gene Munster, a longtime Apple analyst and head of VC firm Loup Partners. “The demand for the 7 Plus was strong when they reported the September quarter and that strength carried on into December.”

Global smartphone sales were largely unchanged in 2016, after years of growth, according to researcher IDC. That puts pressure on Apple because the iPhone generates almost two-thirds of Apple’s revenue. In addition to churning out new handsets, Cook’s response has been to drive adoption of services such as Apple Music, iCloud and the App Store. Services revenue again represented the fastest growing segment, with sales jumping 18 percent to $7.2 billion in the holiday quarter.

Sales in China fell 12 percent to $16.2 billion, the only region to see a decline. Apple said it generated 64 percent of its revenue overseas in the holiday quarter.

IPad sales continued their slide, declining 22 percent from a year earlier to $5.5 billion. Mac revenue increased 7 percent to $7.2 billion.

Cook has also discussed the potential of augmented reality and the possibility of major acquisitions to expand. Apple is working on digital glasses that may use augmented reality, people familiar with the matter said in November.

The presidency of Donald Trump may spark tax reforms which make it cheaper to repatriate cash reserves held outside the U.S.. That could free up more of Apple’s cash to spend on takeovers. Apple had cash reserves of $246.1 billion at the end of 2016, it said on Tuesday.

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